ACIT 12(1)(2), MUMBAI V. CERES CAPITAL AND FINANCIAL SERVIECS P.LTD, MUMBAI

ITA 2609/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3468 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 26-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Additional evidence; Corroborative evidences; Accommodation entries; Set aside
• Section: 143(3); 37(1); 131

Judgement Text

1 IN THE INCOME-TAX APPELLATE TRIBUNAL C BENCH MUMB AI BEFORE SHRI G.S. PANNU, VICE- PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 2609/MUM/2008 (ASSESSMENT YEAR 2011-12 ) ACIT-12(1)(2), R.NO. 522, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. MARG, MUMBAI-400020 VS. M/S CERES CAPITAL & FINANCIAL SERVICES P. LTD., B-404, COUNTRY PARK, OPP. TATA SSI, DATTAPADA ROAD, BO RIVALI (E), MUMBAI- 400066. PAN: AAECC0126C APPELLANT RESPONDE NT APPELLANT BY : SHRI PRAMOD NIKALJE (DR) RESPONDENT BY : SHRI MANDAR VAIDYA (AR) DATE OF HEARING : 23.04.2019 DATE OF PRONOUNCEMEN T : 30.04.2019 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY REVENUE UNDER SECTION 253 OF INCOME- TAX ACT (ACT) IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF I NCOME-TAX (APPEALS)- 20, MUMBAI [HEREINAFTER REFERRED AS LD. CIT(A)] DAT ED 24.01.2018, WHICH IN TURN ARISE FROM THE ASSESSMENT ORDER COMPL ETED UNDER SECTION 143(3) OF THE ACT ON 18.03.2014 FOR ASSESSMENT YEAR 2011-12. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1, 75,00,000/- ON ACCOUNT OF EXPENSES WHICH WERE NOT FULLY AND EXCLUSIVELY EX PENDED FOR THE PURPOSE OF BUSINESS U/S 37(1) OF THE IT ACT. ITA NO. 2609 MUM 2008-M/S CERES CAPITAL & FINA NCIAL SERVICES P. LTD. 2 2. THE APPELLANT PRAYS THAT FOR THESE AND OTHER REASO NS IT IS SUBMITTED THAT THE ORDER OF THE LD. CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-COMPA NY IS ENGAGED IN THE BUSINESS OF FINANCIAL SERVICES, FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2011-12 ON 08.06.2011 DECLARING TOTAL INCOME O F RS. 38,74,391/-. THE RETURN OF INCOME WAS SELECTED FOR SCRUTINY AND ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ON 18.03.2014. DURIN G THE ASSESSMENT PROCEEDING, THE ASSESSING OFFICER NOTED THAT IN THE PROFIT & LOSS ACCOUNT, THE ASSESSEE CLAIMED EXPENDITURE OF RS. 1. 75 CRORE ON ACCOUNT OF OUTSOURCING/CONTRACT SERVICES. THE ASSESSING OFF ICER ISSUED SHOW- CAUSE NOTICE TO THE ASSESSEE TO SUBSTANTIATE THE EX PENSES AND TO FURNISH THE NECESSARY DETAILS WITH SUPPORTING EVIDENCE. IN RESPONSE TO THE SHOW- CAUSE NOTICE, THE ASSESSEE FILED AGREEMENT DATED 15 .07.2010 WITH M/S CERES DIRECT DISTRIBUTION PVT. LTD. (CDDPL) TO WHOM THE PAYMENTS WERE MADE UNDER THIS HEAD. THE ASSESSING OFFICER IS SUED SUMMON UNDER SECTION 131 TO THE DIRECTORS OF CDDPL FOR FURNISHIN G THE DETAILS REGARDING THE AGREEMENT WITH THE ASSESSEE, THE SERV ICES RENDERED AND THE NATURE OF SERVICES ALONG WITH THE COPY OF BILLS AND RECONCILIATION OF PAYMENT WITH BANK STATEMENT. IN RESPONSE TO THE SUM MONS UNDER SECTION 131, THE DIRECTOR OF CDDPL FURNISHED THE COPY OF AG REEMENT, BANK STATEMENT AND COPY OF BILLS RAISED. AFTER PERUSING THE DETAILS FURNISHED ITA NO. 2609 MUM 2008-M/S CERES CAPITAL & FINA NCIAL SERVICES P. LTD. 3 BY ASSESSEE AND CDDPL, THE ASSESSING OFFICER IN PAR A-4.1 OF ITS ORDER SUMMARIZED THAT FEES WERE CHARGED IN THE FOLLOWING MANNER: (A) IN DUE DISCHARGE BY CERES OF ITS OBLIGATIONS UNDER THIS AGREEMENT, CCFS SHALL PAY CERES PER EMPLOYEE/WORK STATION ENGAGED B Y CERES IN SUPPLYING SUB-CONTRACTING SERVICES TO CCFS, FEE AS MAY MUTUALLY AGREED UPON BETWEEN THE PARTIES FROM TIME TO TIME AND LAID DOWN IN ANNEXURE-I OF THIS AGREEMENT. (B) CERES SHALL PRESENT ONE CONSOLIDATED BILL FOR SUB-C ONTRACTING SERVICES CHARGES FOR THE FIXED AMOUNT CHARGED FOR CARRYING O UT THE SAID SERVICES. THE BILL WILL BE SUBMITTED BY THE 7TH OF THE FOLLOWING MONTH IN WHICH THE SERVICES IS PROVIDED. (C) CCFS WILL MAKE THE PAYMENT OF THE BILL WITHIN 7 WOR KING DAYS FROM THE RECEIPT OF CORRECT INVOICE AND SUPPORTING DOCUMENTS . (D) CCFS SHALL DEDUCT THE APPLICABLE TAXES FROM THE PAY MENT MADE TO CERES. THE FEE FOR SERVICES AS LAID DOWN IN ANNEXURE-I IS EXCLUSIVE OF SERVICE TAX AND EDUCATION CESS WHICH AT PRESENT IS PAYABLE @ 10 .30% OF THE BASE FEE, ANY VARIATION ON ACCOUNT OF CHANGE IN TAXES WILL CH ARGED BY CERES AT THE RATES APPLICABLE AS PER THE RELEVANT ACT. 3. AFTER RECORDING THE ARRANGEMENT OF RAISING THE BILL S AND MANNER OF PAYMENTS THEREOF, THE ASSESSING OFFICER TOOK THE VI EW THAT ASSESSEE AS WELL AS RECIPIENT COMPANY FAILED TO FURNISH THE DET AILS ON THE BASIS OF WHICH THE BILLS WERE RAISED AND THAT IN ABSENCE OF ANY SUPPORTING EVIDENCE, THE BILLS ARE NOTHING BUT ADHOC BILL. M/ S CDDPL IS ASSOCIATE CONCERN OF ASSESSEE HAVING COMMON DIRECTOR AND SHAR EHOLDING OF SUBSTANTIAL INTEREST. THE CLAIM OF EXPENDITURE OF R S. 1.75 CRORE ON ACCOUNT OF OUTSOURCING/CONTRACT SERVICES IS NOTHING BUT A COLORFUL DEVICE TO DIVERT THE INCOME OF ASSESSEE-COMPANY BY MAKING A ENTRY IN THE BOOKS ON 30.03.2011 WHICH IS ADJUSTED AGAINST THE R ECIPIENT COMPANY ITA NO. 2609 MUM 2008-M/S CERES CAPITAL & FINA NCIAL SERVICES P. LTD. 4 AGAINST THE EXPENSES. THE EXPENSES WERE NOT INCURRE D WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AS PER THE PROVISION OF SECTION 37(1). ON APPEAL BEFORE THE LD. CIT(A), THE ENTIRE DISALLOWANCE/ADDITION WAS DELETED. DURING THE FIRST APPELLATE PROCEEDINGS , THE ASSESSEE CONTENDED THAT NO OPPORTUNITY WAS GRANTED TO MAKE S UBMISSION BY THE ASSESSING OFFICER. THE ASSESSEE FILED DETAILED SUBM ISSION VIDE SUBMISSION DATED 26.10.2015 ALONG WITH THE NECESSAR Y EVIDENCE AND STATED THAT ASSESSING OFFICER IN SPITE OF FURNISHIN G ALL EXPLANATION AND SUBMISSION HELD THAT ASSESSEE FAILED TO SUBSTANTIAT E THE EXPENSES WITHOUT SUPPORTING EVIDENCE THAT EXPENSES WERE NOT ACTUALLY INCURRED FOR THE PURPOSE OF BUSINESS. THE ASSESSEE ALSO FILED APPLIC ATION UNDER RULE 46A OF INCOME-TAX RULES FOR FURNISHING ADDITIONAL EVIDE NCE. THE LD CIT(A) VIDE HIS ORDER DATED 26.10.2015 REMANDED THE SUBMIS SIONS AND THE EVIDENCES OF THE ASSESSEE TO ASSESSING OFFICER FOR HIS REMAND REPORT. THE ASSESSING OFFICER FILED HIS REMAND REPORT DATED 04. 08.2016 OBJECTED ABOUT THE ADMISSION OF NEW EVIDENCES. THE LD. CIT(A ) DURING THE APPELLATE PROCEEDING FURTHER ASKED THE ASSESSEE TO FURNISH THE COPY OF LEDGER OF CDDPL IN ASSESSEES BOOK, COPY OF LEDGER OF ASSESSEE IN THE BOOKS OF CDDPL, COPY OF BILL RAISED AND COPY OF RET URN OF INCOME OF CDDPL. THE ASSESSEE FURNISHED THE RELEVANT DOCUMENT BEFORE THE LD. CIT(A) ON 24.01.2018. AFTER CONSIDERING THE BOOKS O F ASSESSEE AS WELL AS CDDPL, THE LD. CIT(A) DELETED THE ENTIRE ADDITIO N HOLDING THAT BOTH ITA NO. 2609 MUM 2008-M/S CERES CAPITAL & FINA NCIAL SERVICES P. LTD. 5 THE CONCERN I.E. ASSESSEE AS WELL AS CDDPL ARE TAXE D AT MARGINAL TAX RATE. AGGRIEVED BY THE ORDER OF LD. CIT(A), THE REV ENUE HAS FILED THE PRESENT APPEAL BEFORE US. 4. WE HAVE HEARD THE SUBMISSION OF LD. DEPARTMENT REPR ESENTATIVE (DR) FOR THE REVENUE AND LD. AUTHORIZED REPRESENTATIVE ( AR) OF THE ASSESSEE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE L D. DR FOR THE REVENUE SUPPORTED THE ORDER OF ASSESSING OFFICER AND WOULD SUBMIT THAT THE ASSESSING OFFICER IN PARA-4.4 AND 4.5 OF THE ASSESS MENT ORDER HAS CLEARLY ESTABLISHED THAT THE PAYMENT OF RS. 1.75 CRORE ON A CCOUNT OF OUTSOURCING CHARGES WAS NOTHING BUT A COLORABLE DEVICE TO DIVER T THE INCOME OF ASSESSEE. THE OUTSOURCING OF THE ADVISORY SERVICES IS NOT A PART OF BUSINESS ACTIVITIES OF THE ASSESSEE. THE LD. CIT(A) DELETED THE ENTIRE ADDITION WITHOUT EXAMINING THE GENUINENESS OF TRANS ACTION. THERE WAS NO JUSTIFICATION FOR ALLOWING DEDUCTION OF HUGE EXP ENSES. 5. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SUPPO RTED THE ORDER OF LD. CIT(A). THE LD. AR SUBMITS THAT ASSESSEE AS WELL AS RECIPIENT COMPANY IS TAXED AS MARGINAL TAX RATE. THE LD. CIT(A) EXAMI NED THE NATURE AND ACTIVITIES OF THE SERVICES RENDERED BY ASSESSEE-COM PANY. THE NATURE OF SERVICES PROVIDED TO ASSESSEE-COMPANY WAS EXPLAINED VIDE PAGE NO. 114 OF PAPER BOOK. THE ASSESSEE PROVIDED ALL NECESSARY EVIDENCE TO SUBSTANTIATE THE GENUINENESS OF EXPENSES TO THE ASS ESSING OFFICER AS WELL AS TO LD CIT(A). THE LD. CIT(A) AFTER EXAMINING ALL THE DETAILS AND ON ITA NO. 2609 MUM 2008-M/S CERES CAPITAL & FINA NCIAL SERVICES P. LTD. 6 PROPER SATISFACTION DELETED THE DISALLOWANCES. THE LD AR FOR THE ASSESSEE PRAYED FOR DISMISSAL OF THE APPEAL. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF REPRESEN TATIVE OF THE PARTIES AND HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. DURING THE ASSESSMENT, THE ASSESSING OFFICER DISALLOWED THE EN TIRE EXPENSES ON ACCOUNT OF OUTSOURCING/CONTRACT SERVICES HOLDING TH AT THE ASSESSEE FAILED TO FURNISH THE WORKING AND DETAILS ON THE BASIS OF WHICH THE BILLS WERE RAISED. THE ASSESSING OFFICER ALSO CONCLUDED THAT O UTSOURCING ON ADVISORY IS NOT A PART OF BUSINESS ACTIVITY OF THE ASSESSEE. THE PAYMENTS WERE MADE WITHOUT DEDUCTION OF TAX AT SOURCE AND TH AT THE EXPENSES WERE NOT MADE WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF BUSINESS. WE HAVE NOTED THAT THE ASSESSING OFFICER HAS NOT DISCU SSED THE EVIDENCE FURNISHED BY ASSESSEE EXCEPT OBSERVING THAT THE ASS ESSEE FAILED TO FURNISH THE WORKING AND DETAILS ON THE BASIS OF WHICH THE B ILLS WERE RAISED. BEFORE THE LD. CIT(A), THE ASSESSEE FILED DETAILED SUBMISSION ALONG WITH ALL THE DOCUMENTARY EVIDENCES VIDE SUBMISSION DATED 26.10.2015. THE SUBMISSION OF ASSESSEE WAS REMANDED TO THE ASSESSIN G OFFICER FOR HIS REMAND REPORT. THE ASSESSING OFFICER FURNISHED HIS REMAND REPORT VIDE REMAND REPORT DATED 14.08.2016. 7. WE HAVE NOTED THAT THE ASSESSEE HAS FILED THE COPY OF SUBMISSION DATED 26.10.2015 WITH ALL NECESSARY EVIDENCES. THE ASSESS EE ALSO FILED APPLICATION UNDER RULE 46A OF INCOME-TAX RULES FOR FURNISHING ITA NO. 2609 MUM 2008-M/S CERES CAPITAL & FINA NCIAL SERVICES P. LTD. 7 ADDITIONAL EVIDENCE. IN THE SUBMISSION DATED 26.10. 2015, THE ASSESSEE CONTENDED THAT DESPITE FURNISHING ALL EXPLANATION A ND SUBMISSION, THE ASSESSING OFFICER NOTED THAT ASSESSEE FAILED TO SUB STANTIATE THE EXPENSES WITHOUT SUPPORTING EVIDENCE. THE ASSESSEE ALSO CONT ENDED THAT CDDPL HAD INFRASTRUCTURE TO EXECUTE THE WORK, THEREFORE, THE WORK WAS ASSIGNED TO THEM. THE ADDITIONAL EVIDENCE AND THE SUBMISSION OF ASSESSEE WERE REMANDED TO THE ASSESSING OFFICER. THE ASSESSING OF FICER FURNISHED HIS REMAND REPORT DATED 04.08.2016 (COPY OF WHICH IS FI LED VIDE PAGE NO. 166 TO 168 OF PAPER BOOK). THE ASSESSEE FILED HIS R ESPONSE TO THE REMAND REPORT VIDE REPLY/SUBMISSION DATED 13.02.201 7 (COPY OF WHICH IS AT PAGE NO. 169 TO 234 OF PAPER BOOK). THE LD. CIT( A) FURTHER DIRECTED THE ASSESSEE TO FURNISH THE COPY OF LEDGER OF CDDPL IN ASSESSEES BOOK, COPY OF LEDGER OF ASSESSEE IN THE BOOKS OF CDDPL, C OPY OF BILLS RAISED AND RETURN OF CDDPL. THE ASSESSEE ALSO FURNISHED TH E DETAILS OF THE SERVICES PROVIDED UNDER THE AGREEMENT. THE LD. CIT( A) AFTER CONSIDERING THE MATERIAL PLACED BEFORE HIM CONCLUDED THAT THE A MOUNT RECEIVED BY CDDPL IS DULY ENTERED IN THEIR BOOKS AS EVIDENT FRO M ASSESSEES LEDGER. BOTH THE CONCERN I.E. ASSESSEE AND CDDPL ARE TAXED AT MARGINAL TAX RATE. THEREFORE, THE OBSERVATION OF ASSESSING OFFIC ER THAT TRANSACTION BETWEEN THE ASSESSEE WAS PART OF DESIGN TO EVADE TA X WITHOUT ANY SUBSTANCE. THE LD. CIT(A) ALSO CONCLUDED THAT IT IS NOT A CASE OF ASSESSING OFFICER THAT CDDPL IS A PAPER CONCERN AND HAD PROVIDED ITA NO. 2609 MUM 2008-M/S CERES CAPITAL & FINA NCIAL SERVICES P. LTD. 8 ACCOMMODATION ENTRIES TO THE ASSESSEE. WE HAVE NOTE D THAT THE LD. CIT(A) GAVE A CATEGORICAL FINDING AFTER PROPER APPR ECIATION OF FACT. NO CONTRARY FACTS OR LAW IS BROUGHT TO OUR NOTICE TO T AKE OTHER VIEW, THEREFORE, WE AFFIRM THE ORDER OF LD. CIT(A). 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30/04/2019. SD/- SD /- G.S. PANNU PAWAN SINGH VICE-PRESIDENT JUDICIAL MEMBER MUMBAI, DATE: 30.04.2019 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR C BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI